The divorce process is not something you want to plan for, but neither is losing your assets. Adequate planning increases your ability to protect your assets in a divorce during the division process. A popular route many people choose is an irrevocable trust as it provides a great level of security over your assets.

You’ve come to the right place if you’re interested in using an irrevocable trust in a divorce settlement. Below, we will discuss everything you need to know about how irrevocable trusts work during the divorce process. When creating a trust, you should work with an experienced asset protection attorney to meet your needs.

What is the role of an irrevocable trust in a divorce settlement?

An irrevocable trust moves assets from your name as the creator (the “grantor”) into the hands of a third-party trustee. With an irrevocable trust, you should not name yourself as the trustee. Irrevocable trusts should not be part of the division process, as the assets will simply go to the designated beneficiaries as defined by the document’s terms. While irrevocable trusts may be shielded from asset division, the court will still consider this income when calculating alimony and child payments.

What happens to an irrevocable trust in a divorce settlement?

Irrevocable trusts typically stay unchanged during divorce settlements. While the court may consider the assets in the trust when calculating income, the trust should remain unaffected by the process. All beneficiaries, distributions, and other terms should remain the same after the divorce settlement is finalized. Because of this, irrevocable trusts provide excellent wealth protection from divorce asset division.

How are irrevocable trusts beneficial in divorce settlements?

couple dividing marital property in office of divorce attorney

Irrevocable trusts provide numerous benefits during the divorce process. If you choose to create an irrevocable trust, you can enjoy the following advantages:

Asset Protection

When going through a divorce, you must complete the asset division process. Most of your assets will be categorized as marital or separate property.

Your marital property includes everything you and your spouse have acquired or owned together. The court will divide these items appropriately, meaning you will be at risk of losing things like your home, vehicles, investments, and wealth.

Irrevocable trusts help you avoid this risk. When creating the trust, you can designate yourself, your children, or other loved ones as beneficiaries to ensure the right people receive your wealth down the line. Your spouse will be unable to change any of these decisions during the divorce process.

Avoiding Probate

Probate is a public court process that occurs after someone’s passing with the purpose of dividing their assets in accordance with their will. The probate process is often time-consuming, expensive, and public, placing loved ones under more emotional burden when they’re already grieving a loss. Trusts allow your loved ones to avoid probate as they ensure your assets go to the correct people without needing a court hearing to oversee this otherwise tedious process.

Maintaining Privacy

By avoiding probate and protecting assets with an irrevocable trust, you keep your information private. The divorce process can expose your information publicly. Suppose you store your assets in an irrevocable trust. In that case, they will be shielded from the public divorce process so you can maintain ultimate privacy, which can be especially comforting if the assets are high in value.

For further privacy and asset protection, many use offshore trusts which provide ultimate protection. An offshore trust can protect your assets from seizure, provide extra privacy, and much more. If you’re interested in setting up an offshore account, you should meet with an asset protection attorney to ensure you follow all steps correctly and take advantage of each opportunity.

Risks and Limitations of Irrevocable Trusts in Divorce

blue jigsaw puzzle with one missing piece

An irrevocable trust in divorce settlement scenarios also comes with some risks and limitations. You should weigh all of the associated disadvantages before creating your account, so you know what you’re getting into.

Loss of Control

By creating an irrevocable trust, you relinquish direct control of the assets inside the trust. However, you can still request the trustee take certain actions with the trust assets such as when to make a distribution and how trust assets are invested.

Potential for Disputes

In rare scenarios, irrevocable trusts can be contested. With the right legal team and the right conditions, someone may contest the irrevocable trust and potentially change the terms. For example, after you pass, if all of your beneficiaries agree on changing a term, they may successfully do so.

The Difference Between a Revocable Trust and Irrevocable Trust in a Divorce Settlement

Any marital assets inside the revocable trust will need to be divided appropriately, and you and your spouse will be able to make changes as necessary. With a revocable trust, you can change or undo any previous decisions you or your spouse made when creating the trust.

An irrevocable trust cannot be changed by a divorcing spouse or by a court. However, upon your request, a trustee may have the flexibility to change the terms of an irrevocable if the trustee deems such change to be in your best interest.

Tax Implications of an Irrevocable Trust in Divorce

judge gavel dollar banknotes and calculator on wooden background

Irrevocable trusts might remove the assets from your estate, meaning the assets will not be included in your taxable estate. Whether or not you must pay income tax on income generated by the assets in your trust will depend on whether you categorize the trust as a simple, complex, or grantor trust. Your experienced asset protection attorney can walk you through these options.

Speak With an Experienced Asset Protection Attorney Today

Now that you know the purpose of an irrevocable trust in the divorce settlement process, speak with a professional asset protection attorney to begin discussing your options. Going through this alone could create insurmountable problems in the future. At Blake Harris Law, we can help you create the right asset protection strategy for your needs, whether that involves an irrevocable trust, offshore account, or anything else needed to secure your assets. Contact Blake Harris Law today to get started.